The 1099 Dilemna

Many contractors hire "employees" in a 1099 (see IRS guidelines for terminology) capacity in an attempt to bypass the cost of Workers Compensation as well as payroll liabilities. Sometimes the "1099" gambit is also used to hire employees who might not be legally in the United States. While these all might appear as valid reasons there are a number of reasons for not taking this course of action:

1. It's illegal. That should be enough of a reason.
2. Typically 1099 "employees" do not carry insurance and General Liability carriers have wised up to this scam and ask for certificates of insurance for all sub-contractors or they will charge for the exposure at higher rates.
3. Workers Compensation carriers will require certificates of insurance (or waivers of WC for sole proprietorship) or charge for the exposure.
4. In case the 1099 employee has an "on-the job" workers compensation claim they burden of proof can lie on the contractor to actually prove that the 1099 contractor was in fact eligible to be paid as a 1099. We typically provide our contractors with a check sheet that helps them determine if the employee can be paid as a 1099. Visit www.martinburlingame.com or email martin@martinburlingame.com for more information.
5. You have "independent contractor" liability exposure and can be sued for negligent hiring or supervision (read your GL policy)
6. Policy exclusions can limit the protection of the insurance policy towards "completed operations" by subcontractors.
7. GL policies may (almost all do) require that subcontractors carry insurance in equal limits the contractor thereby pushing additional costs down on 1099 contractors.
8. It's illegal and can result in fines from both the State and Federal government.

Quite often we get contacted by contractors who are facing large workers compensation audits or audits by their GL carriers. Many of these audits are a direct result of the miss use of independent contractors. Consult your agent and your policy and if in doubt err to the side of caution.